Fund Manager
Norm Lamarche
With the end of the first quarter of 2007 behind us, investors are feeling relieved as they received more volatility than they bargained for during the period. The markets threw two solid bouts of weakness, followed by full recoveries, before forging ahead to post new highs in early April. The most recent setback in February originated from the fears of the sub-prime lending’s impact on both the U.S. and global economies. Investors took a deep breath in March and began to shake off fears as the focus returned to the broader economic strength outside of the U.S. economy.
Energy shares, driven by rising commodity prices, led the way. Escalation in tensions between Iran and the British re-introduced the notion of a risk-premium in the price of an oil barrel. With the end of the North American heating season now behind us, natural gas investors have now re-set their inventory watches and have come to realize that inventories today (heading into injection season) are not all that different than the long term averages.
On concerns of a global economic slowdown, crude oil began the month lower and reversed course mid-month as Iran captured 15 British sailors. Crude never looked back as investors views’ of the worldwide economic order continued to improve. Sustained and surprising strength in U.S. gasoline demand, coupled with lingering refining bottlenecks drove gasoline prices firmer and forced both crude oil and refining margins higher during the month. Heavy oil prices in Canada are following their seasonal patterns, and are moving higher both with crude and lower heavy oil differentials. Natural gas prices appear to have stabilized. With the January and February cold snaps, inventories have now been re set to more normal levels and investors are now focused on summer demand, supply activities as well as the looming hurricane season. Many analysts have already bumped up their expectations for this year’s natural gas price realizations. Needless to say, confidence is returning to the group. Time horizons are lengthening as a result and investors are more willing to focus on, and evaluate, the smaller cap growth-oriented players. The energy alternatives, the uraniums in particular, powered ahead in Q1, as the uranium commodity continues to establish new highs. Of concern, however, is the relative insignificant volume associated with the new highs! We continue to trim our positions on strength and are becoming increasingly selective.
The Oilsands is a segment that we have been accumulating over the last 4-5 months. The group, under pressure from a declining crude price since July ($78 to sub $50/lb), was also suffering from the perceived (and real) cost inflation in the Oilsands world. Inflation concerns are also not limited to the Oilsands. The synchronized capital spending cycle world wide in energy, metals, housing, transportation, etc… have strained the supply side’s abilities to deliver on time and on budget. The changing fiscal, royalty and ownership structures with respect to international investments (in Latin America, Russia, Africa) have also had the effect of dramatically increasing the costs and/or decreasing the opportunities abroad. As a result, investors and energy companies will likely continue to converge towards the Canadian Oilsands, as they represent both size reserves and importantly, a stable region where technological advancements promise the potential of future efficiencies.
In the Base Metals complex, nickel forged ahead while copper continued its recovery process. Copper ended the month at $3.14/lb, up 14% from last month’s close. In the nickel arena, the M&A activities helped drive valuations. Xtrata offered to acquire Lionore Minerals, while Lundin Mining announced an offer to acquire Rio Narcea. With the prospec tivity of sustained high commodity prices, combined with healthy balance sheets and cash flow streams, the major mining companies are electing to acquire growth, as opposed to building it. Launching a new, greenfield mining devel opment, in an uncertain political jurisdiction, in an inflationary capital spending cycle worldwide, is proving unattractive, relative to the valuations of existing public companies. We expect more as the year unfolds!
Our Funds have been using the market strength in the uranium and nickel spaces, to lighten up on some of its names. Proceeds have been used to acquire copper, moly and precious metals producers. The U.S. dollar continues to trend lower, on a weighted basis as investors refocus their attention on the relative economic weakness. Evidence of Foreign With the end of the first quarter of 2007 behind us, investors are feeling relieved as they received more volatility than they bargained for during the period. The markets threw two solid bouts of weakness, followed by full recoveries, before forging ahead to post new highs in early April. The most recent setback in February originated from the fears of the sub-prime lending’s impact on both the U.S. and global economies. Investors took a deep breath in March and began to shake off fears as the focus returned to the broader economic strength outside of the U.S. economy.
Energy shares, driven by rising commodity prices, led the way. Escalation in tensions between Iran and the British re-introduced the notion of a risk-premium in the price of an oil barrel. With the end of the North American heating season now behind us, natural gas investors have now re-set their inventory watches and have come to realize that inventories today (heading into injection season) are not all that different than the long term averages.
On concerns of a global economic slowdown, crude oil began the month lower and reversed course mid-month as Iran captured 15 British sailors. Crude never looked back as investors views’ of the worldwide economic order continued to improve. Sustained and surprising strength in U.S. gasoline demand, coupled with lingering refining bottlenecks drove gasoline prices firmer and forced both crude oil and refining margins higher during the month. Heavy oil prices in Canada are following their seasonal patterns, and are moving higher both with crude and lower heavy oil differentials. Natural gas prices appear to have stabilized. With the January and February cold snaps, inventories have now been re set to more normal levels and investors are now focused on summer demand, supply activities as well as the looming hurricane season. Many analysts have already bumped up their expectations for this year’s natural gas price realizations. Needless to say, confidence is returning to the group. Time horizons are lengthening as a result and investors are more willing to focus on, and evaluate, the smaller cap growth-oriented players. The energy alternatives, the uraniums in particular, powered ahead in Q1, as the uranium commodity continues to establish new highs. Of concern, however, is the relative insignificant volume associated with the new highs! We continue to trim our positions on strength and are becoming increasingly selective.
The Oilsands is a segment that we have been accumulating over the last 4-5 months. The group, under pressure from a declining crude price since July ($78 to sub $50/lb), was also suffering from the perceived (and real) cost inflation in the Oilsands world. Inflation concerns are also not limited to the Oilsands. The synchronized capital spending cycle world wide in energy, metals, housing, transportation, etc… have strained the supply side’s abilities to deliver on time and on budget. The changing fiscal, royalty and ownership structures with respect to international investments (in Latin America, Russia, Africa) have also had the effect of dramatically increasing the costs and/or decreasing the opportunities abroad. As a result, investors and energy companies will likely continue to converge towards the Canadian Oilsands, as they represent both size reserves and importantly, a stable region where technological advancements promise the potential of future efficiencies.
In the Base Metals complex, nickel forged ahead while copper continued its recovery process. Copper ended the month at $3.14/lb, up 14% from last month’s close. In the nickel arena, the M&A activities helped drive valuations. Xtrata offered to acquire Lionore Minerals, while Lundin Mining announced an offer to acquire Rio Narcea. With the prospec tivity of sustained high commodity prices, combined with healthy balance sheets and cash flow streams, the major mining companies are electing to acquire growth, as opposed to building it. Launching a new, greenfield mining devel opment, in an uncertain political jurisdiction, in an inflationary capital spending cycle worldwide, is proving unattractive, relative to the valuations of existing public companies. We expect more as the year unfolds!
Our Funds have been using the market strength in the uranium and nickel spaces, to lighten up on some of its names. Proceeds have been used to acquire copper, moly and precious metals producers. The U.S. dollar continues to trend lower, on a weighted basis as investors refocus their attention on the relative economic weakness. Evidence of Foreign Central banks diversifying their reserves away from the Greenback (some in gold) should offer a lending hand to commodity prices. Our natural gas focus over the last 6 months paid us dividends in Q1 as investors’ attention turned to the group’s opportunities. Notwithstanding the volatile energy commodity world ahead this year, we believe this group should perform, as the energy patch becomes less competitive over the next few years. Service costs, land prices and professional staff, are once again available at reasonable costs. More importantly, expectations are down a few notches! We continue to avoid the many sectors related to the U.S. consumer. The western-based manufacturers continue to face challenging competitive environments. We remain focused on the strength originating outside the U.S. “centric” world.
Norm Lamarche - Q1 2007 Commentary
Date Published
Fund Manager
With the end of the first quarter of 2007 behind us, investors are feeling relieved as they received more volatility than they bargained for during the period. The markets threw two solid bouts of weakness, followed by full recoveries, before forging ahead to post new highs in early April. The most recent setback in February originated from the fears of the sub-prime lending’s impact on both the U.S. and global economies. Investors took a deep breath in March and began to shake off fears as the focus returned to the broader economic strength outside of the U.S. economy.
Energy shares, driven by rising commodity prices, led the way. Escalation in tensions between Iran and the British re-introduced the notion of a risk-premium in the price of an oil barrel. With the end of the North American heating season now behind us, natural gas investors have now re-set their inventory watches and have come to realize that inventories today (heading into injection season) are not all that different than the long term averages.
On concerns of a global economic slowdown, crude oil began the month lower and reversed course mid-month as Iran captured 15 British sailors. Crude never looked back as investors views’ of the worldwide economic order continued to improve. Sustained and surprising strength in U.S. gasoline demand, coupled with lingering refining bottlenecks drove gasoline prices firmer and forced both crude oil and refining margins higher during the month. Heavy oil prices in Canada are following their seasonal patterns, and are moving higher both with crude and lower heavy oil differentials. Natural gas prices appear to have stabilized. With the January and February cold snaps, inventories have now been re set to more normal levels and investors are now focused on summer demand, supply activities as well as the looming hurricane season. Many analysts have already bumped up their expectations for this year’s natural gas price realizations. Needless to say, confidence is returning to the group. Time horizons are lengthening as a result and investors are more willing to focus on, and evaluate, the smaller cap growth-oriented players. The energy alternatives, the uraniums in particular, powered ahead in Q1, as the uranium commodity continues to establish new highs. Of concern, however, is the relative insignificant volume associated with the new highs! We continue to trim our positions on strength and are becoming increasingly selective.
The Oilsands is a segment that we have been accumulating over the last 4-5 months. The group, under pressure from a declining crude price since July ($78 to sub $50/lb), was also suffering from the perceived (and real) cost inflation in the Oilsands world. Inflation concerns are also not limited to the Oilsands. The synchronized capital spending cycle world wide in energy, metals, housing, transportation, etc… have strained the supply side’s abilities to deliver on time and on budget. The changing fiscal, royalty and ownership structures with respect to international investments (in Latin America, Russia, Africa) have also had the effect of dramatically increasing the costs and/or decreasing the opportunities abroad. As a result, investors and energy companies will likely continue to converge towards the Canadian Oilsands, as they represent both size reserves and importantly, a stable region where technological advancements promise the potential of future efficiencies.
In the Base Metals complex, nickel forged ahead while copper continued its recovery process. Copper ended the month at $3.14/lb, up 14% from last month’s close. In the nickel arena, the M&A activities helped drive valuations. Xtrata offered to acquire Lionore Minerals, while Lundin Mining announced an offer to acquire Rio Narcea. With the prospec tivity of sustained high commodity prices, combined with healthy balance sheets and cash flow streams, the major mining companies are electing to acquire growth, as opposed to building it. Launching a new, greenfield mining devel opment, in an uncertain political jurisdiction, in an inflationary capital spending cycle worldwide, is proving unattractive, relative to the valuations of existing public companies. We expect more as the year unfolds!
Our Funds have been using the market strength in the uranium and nickel spaces, to lighten up on some of its names. Proceeds have been used to acquire copper, moly and precious metals producers. The U.S. dollar continues to trend lower, on a weighted basis as investors refocus their attention on the relative economic weakness. Evidence of Foreign With the end of the first quarter of 2007 behind us, investors are feeling relieved as they received more volatility than they bargained for during the period. The markets threw two solid bouts of weakness, followed by full recoveries, before forging ahead to post new highs in early April. The most recent setback in February originated from the fears of the sub-prime lending’s impact on both the U.S. and global economies. Investors took a deep breath in March and began to shake off fears as the focus returned to the broader economic strength outside of the U.S. economy.
Energy shares, driven by rising commodity prices, led the way. Escalation in tensions between Iran and the British re-introduced the notion of a risk-premium in the price of an oil barrel. With the end of the North American heating season now behind us, natural gas investors have now re-set their inventory watches and have come to realize that inventories today (heading into injection season) are not all that different than the long term averages.
On concerns of a global economic slowdown, crude oil began the month lower and reversed course mid-month as Iran captured 15 British sailors. Crude never looked back as investors views’ of the worldwide economic order continued to improve. Sustained and surprising strength in U.S. gasoline demand, coupled with lingering refining bottlenecks drove gasoline prices firmer and forced both crude oil and refining margins higher during the month. Heavy oil prices in Canada are following their seasonal patterns, and are moving higher both with crude and lower heavy oil differentials. Natural gas prices appear to have stabilized. With the January and February cold snaps, inventories have now been re set to more normal levels and investors are now focused on summer demand, supply activities as well as the looming hurricane season. Many analysts have already bumped up their expectations for this year’s natural gas price realizations. Needless to say, confidence is returning to the group. Time horizons are lengthening as a result and investors are more willing to focus on, and evaluate, the smaller cap growth-oriented players. The energy alternatives, the uraniums in particular, powered ahead in Q1, as the uranium commodity continues to establish new highs. Of concern, however, is the relative insignificant volume associated with the new highs! We continue to trim our positions on strength and are becoming increasingly selective.
The Oilsands is a segment that we have been accumulating over the last 4-5 months. The group, under pressure from a declining crude price since July ($78 to sub $50/lb), was also suffering from the perceived (and real) cost inflation in the Oilsands world. Inflation concerns are also not limited to the Oilsands. The synchronized capital spending cycle world wide in energy, metals, housing, transportation, etc… have strained the supply side’s abilities to deliver on time and on budget. The changing fiscal, royalty and ownership structures with respect to international investments (in Latin America, Russia, Africa) have also had the effect of dramatically increasing the costs and/or decreasing the opportunities abroad. As a result, investors and energy companies will likely continue to converge towards the Canadian Oilsands, as they represent both size reserves and importantly, a stable region where technological advancements promise the potential of future efficiencies.
In the Base Metals complex, nickel forged ahead while copper continued its recovery process. Copper ended the month at $3.14/lb, up 14% from last month’s close. In the nickel arena, the M&A activities helped drive valuations. Xtrata offered to acquire Lionore Minerals, while Lundin Mining announced an offer to acquire Rio Narcea. With the prospec tivity of sustained high commodity prices, combined with healthy balance sheets and cash flow streams, the major mining companies are electing to acquire growth, as opposed to building it. Launching a new, greenfield mining devel opment, in an uncertain political jurisdiction, in an inflationary capital spending cycle worldwide, is proving unattractive, relative to the valuations of existing public companies. We expect more as the year unfolds!
Our Funds have been using the market strength in the uranium and nickel spaces, to lighten up on some of its names. Proceeds have been used to acquire copper, moly and precious metals producers. The U.S. dollar continues to trend lower, on a weighted basis as investors refocus their attention on the relative economic weakness. Evidence of Foreign Central banks diversifying their reserves away from the Greenback (some in gold) should offer a lending hand to commodity prices. Our natural gas focus over the last 6 months paid us dividends in Q1 as investors’ attention turned to the group’s opportunities. Notwithstanding the volatile energy commodity world ahead this year, we believe this group should perform, as the energy patch becomes less competitive over the next few years. Service costs, land prices and professional staff, are once again available at reasonable costs. More importantly, expectations are down a few notches! We continue to avoid the many sectors related to the U.S. consumer. The western-based manufacturers continue to face challenging competitive environments. We remain focused on the strength originating outside the U.S. “centric” world.